e-business and Knowledge Management -

Approach and Experience

Prabuddha Banerjee, Roger Baumer, Johannes Hennekeuser

The e-business Principle

This is one chapter out of the book that was published by IBM Consulting Group, Zurich in 2000.

Overview

• Knowledge is the enterprise’s key competitive asset. Knowledge management should not be considered as independent from business strategy and core processes. • Business processes must be supported by knowledge; both explicit and implicit knowledge must be taken into account. • A culture of open exchange, leadership, user integration, and efficient communication technologies are necessary requirements for the implementation of knowledge management. • With the use of e-business applications, knowledge management can be designed more effectively and expanded beyond enterprise borders.

1 What is "knowledge" and what is "knowledge management"?

The awareness of knowledge as a critical element for economic success, if not survival, in a dynamic and intensely competitive environment has been apparent to managers and businesses across all industries for some time. Concepts like "Management of Core Competencies", "Resource Based Strategies", "Learning Organization" and "Use of Expert Systems" are evidence of this. Recently a new concept has arisen: the handling and deployment of knowledge as a valuable business resource requires more than just strategy and IT. Information technology does play an important role in enabling the collection, distribution, and use of knowledge at any place or time, even beyond the limits of the organization. That is why there are an enormous number of conferences and probably hundreds, if not thousands, of articles and books that deal with all kinds of approaches to knowledge management. However, many questions still remain unanswered, and solutions become evident only after the abstract concept of knowledge management is applied to the realities of business. Such questions include: How and where should we start? What knowledge is relevant to doing business? What is the concrete economic value? How do we need to change our organization? What’s the contribution of information and communication technology? How can we use our combined knowledge to go beyond the value chain? This article will help to find answers to these questions. We cannot present a fail-safe "recipe" for success, of course but we can highlight the characteristics of successful projects based on our experiences with our customers and with our company, IBM.

1.1 Knowledge

Firstly, we wish to distinguish the term "knowledge" from the terms "data" and "information", by using a comparison with the workings of a supermarket. Data involves simple statements about facts or events. In our comparison, this could be a data sheet with product numbers, quantity, and price. This data is saved in the inventory control system of the supermarket. When you give meaning to data it becomes information. A piece of information is exchanged between a sender and a recipient through a communication medium. In our example of the supermarket, it is the sales slip that gives you information about your purchase and the amount you paid. Knowledge builds upon information, enriching it with experience and context. After a visit to the supermarket, you will know what the store looks like, whether the cashier was friendly, whether the item you have purchased is up to your expectations, and whether you have found what you were looking for. These experiences and impressions determine whether you will consider visiting this supermarket again (utilizing your knowledge), or even if you will recommend it to your friends (sharing your knowledge with others). Hence, knowledge controls actions and decisions. Let us consider the same supermarket example from the supplier’s point of view. The collected data, which on its own is useless, will be consolidated and structured, resulting in information on business activity. We only talk about knowledge when the recipient, evaluates the information and based on all collected experiences, derives decisions. So, for example, supermarket managers might decide on a new display, an adjusted market approach, measures to reduce overhead costs, or a combination of these elements. In alignment with this store's e-business strategy, this knowledge will be distributed to the entire supermarket chain and shared with important suppliers and customers.

1.2 Kinds of knowledge

We differentiate between explicit knowledge and implicit knowledge. Explicit knowledge can be found in documents, plans, methods, process descriptions, check lists, drawings, and expert systems. Because this knowledge is documented, it can be saved in a database or an application and is available immediately. With an appropriate IT infrastructure, it is even available beyond enterprise borders. The knowledge of an individual, team, or entire business is far more than could ever be written down within the confines of normal time and resources. "White space" will remain in documented knowledge, and these areas will only be explored when they are needed. We call this type of knowledge "tacit" or "implicit" knowledge. It contains experiences, intuition and standards of behaviour that influence our discernment and, therefore, our actions. Implicit knowledge is usually richer and more profound than explicit knowledge. Depending on the situation, one can access implicit knowledge, reconfigure it, and enhance it more quickly.

1.3 Knowledge management and e-business

To use this immense knowledge as a resource in a business value chain, a systematic approach is necessary for management to make the collected knowledge available inside and outside of the enterprise. From a knowledge perspective, this approach combines improvements in processes, organizational structures, and the company’s culture, as well as its information technology. E-business, which comprises the implementation of new business models and corresponding business processes by using information and communication technology, requires a similar approach. Now, after having formed the theoretical base, we will use a real case to show how the IBM Consulting Group helped a customer on his way to managing knowledge.

2 The Case of Wellesley Ltd.

2.1 Background

Wellesley Ltd. is a European enterprise and a worldwide leader and pioneer in the industrial sector. Its wide range of products appeals to consumers who demand appliances customized to their specifications. The focus on customization creates demanding requirements for Wellesley’s sales staff. Twenty-five branches in Europe, America, and Asia, as well as a network of representatives and distributors in various countries, form the company’s global presence. Production is concentrated in five locations, while marketing is decentralized. The customization of the end product according to individual local or regional customer needs is at the discretion of each respective corporate branch. Therefore it is necessary to leverage specific skills and expert knowledge across the company. Because business subsidiaries focus on different products for their respective markets, specific knowledge is scattered all over the world. Research and development, on the other hand, are centralized at corporate headquarters.

2.2 Problems with the flow of information and knowledge

Because of the enterprise's decentralized structure and geo-global alignment, the flow of information has always been an important topic. Headquarters mails brochures, detailed product information and specifications, instructions for customization, and criteria catalogues for the product of choice to each subsidiary. The information that flows back to headquarters consists mostly of customer complaints and product requests. More and more, these old processes were not able to appropriately meet new information demand. Since information was mostly paper-based and flowing in only one direction, headquarters did not receive any feedback regarding their subsidiaries’ and customers’ needs and problems. Also, branches complained that they did not receive information on time. A culture of "knowledge sharing" did not exist in this enterprise. Knowledge about innovative applications and "best practices" for customized solutions were only exchanged informally, or literally, by accident. Due to the large variety of the company’s products and varied customer needs, answering customer inquiries took a long time. These problems with information and knowledge exchange had a negative impact on the company's activities. Below are some typical examples: • The lack of shared information and knowledge about products and applications, and experiences regarding customization, led to "continual reinvention of the wheel". This influenced product quality and increased manufacturing and installation time, consequentially increasing costs. • Customer satisfaction and company and product image suffered due to the fact that different subsidiary corporations were offering multiple products for the same customer problem, and customer needs were only met after long delays.

2.3 The Approach

Now we will outline the approach and the critical success factors of the implementation. The IBM Consulting Group chose a three-step approach that breaks down into several sub-steps. In the first step we identified the knowledge strategy, which was derived from the corporate strategy and the critical success factors. We also examined the kind of knowledge that is needed to support the core processes. In the second step we developed the "Knowledge Management System" with applications, organizational roles and responsibilities, and required processes. Finally, in step three, the system is implemented. In the next sections we will outline the implementation using the example of Wellesley Ltd.

2.4 Definition of Knowledge Strategy

The initial questions were: How can we apply knowledge as a resource and use it to improve competitiveness? Which processes influence the application of strategy, and which type of knowledge plays a role in these processes? At the beginning of the article, we showed that successful knowledge management builds directly upon the company's strategy. Therefore, we conducted interviews with the CEO and members of the executive management to uncover Wellesley's critical success factors. The following factors could be identified: • Offer high quality products through customizing basic products with sophisticated production technologies and skills. • Maintain price leadership • Increase attention to customer needs • Be first in the development of new products, the provision of goods to customer requirements, and new application possibilities • Increase flexibility inside the organization to provide international range of goods and to solve industry-wide problems. In the next sub-step we identified business processes that have the greatest impact on these success factors. A core team with representatives from corporate headquarters and important subsidiaries was established, making it possible to include all the different requirements and points of view that existed throughout the company as a whole. Results of this collaboration were four processes which had the greatest influence on success factors: Logistics, product marketing, customization, and after-sales service. Next, the core team defined the specific influence of each process on the business and the knowledge necessary to exert this influence. If, for example, "product marketing" should contribute to the success factors, the following knowledge should be accessible: • Experiences and guidelines for choosing the best product for specific customer applications • Reliable support for all international customers, with product recommendations and offers that are consistent throughout all subsidiaries • Use of experiences of subsidiaries in all countries to shorten development time in new industrial sectors.

2.5 Development of the Knowledge Management System

The initial questions were: How exactly can we infuse processes with existing and future knowledge? Which business processes and what supporting company culture need to be created?

2.5.1 Prioritization, design and development of applications

Previous knowledge should be pooled into applications that enable its retrieval. For the existing process of "product marketing", this means a supported application that provides timely and exact information on criteria for product use, product data sheets, product brochures, and technical support. We will call this application "marketing support". We used the two criteria, "influence on business" and "implementation efforts", to prioritize all possible and required applications (for all business processes). In this analysis, developmental costs and time were not the only two fundamental issues. In addition, our experiences showed that for project’s success, quick wins are also necessary to prove at an early time, the value of the project applications to the entire enterprise. This will facilitate not only development but also subsequent implementation. Through prioritization, we found out that the "value chain" application will have an immense impact on business success. However, the general implementation and rollout of such an application would have required the migration of the existing standard application system. Due to the extensive implementation time and financial efforts this would have required, the implementation of this application was put further down on the priority list. On the other hand, applications with low influence but ideal implementation requirements were rated as high priority. To get a complete picture, this procedure was discussed at length with executive managers of subsidiary corporations and a core team from corporate headquarters.

2.5.2 Definition of knowledge processes, roles and responsibilities

During this sub-step we determined the principles for gathering, using and enhancing knowledge. As initially mentioned, information is the foundation for knowledge management. Only experience in dealing with information enables effective knowledge management. Definite rules for dealing with information must be established to avoid the danger of having to rely on obsolete information that is inaccurate and, ultimately, useless. Without a superior information base, knowledge management has no foundation whatsoever.

2.5.3 The Knowledge Management System of Wellesley Ltd.

At Wellesley Ltd., knowledge is generated along processes, evaluated, structured, and registered. Only then it is available for users. Knowledge experts are responsible for the quality of this process. In a subsequent stage of expansion, customers and suppliers can be integrated into the system.

2.6 Critical Success Factors for Implementation

The implementation of knowledge management systems requires the similar number of processes as the implementation of other systems. That's why we will discuss only a few features of the present project here.

2.6.1 Top-Down: Leadership

Without the strong leadership of the sponsor, knowledge management will remain a project among many, and will not develop to its full potential value. In the present case, the CEO himself was the executive sponsor. His integrated role, as well as his active communication, was of crucial importance because of the decentralized organization of the corporation. Resistance could be effectively thwarted. For example: chain store managers complained about the time and effort that it would take to "feed" the system, and were afraid that their control over information flow would be threatened. The necessary investments in server, network, and support infrastructures also met with resistance. With CEO’s support and a few "change agents", as well as the launch of an information blitz, these barriers were overcome and a more positive basic attitude was generated among employees.

2.6.2 Bottom-up: Integration of Users

Beginning with project launch, users from across the organization were integrated into development activities. This was a radical change from the usual one-sided practice of predetermining business unit needs at corporate headquarters. During the workshops, users were enthusiastic about joining in. They made decisive contributions to system design, and infected the rest of the organization with their enthusiasm. The politics of "do it first, ask questions later" would have doomed the project to failure.

2.6.3 User Scenario Marketing

The information process described earlier required additional time requirements for users during the initial stages. To market the system internally, we developed day-to-day scenarios for every application, which demonstrate the project’s usefulness to daily work. Those scenarios contained three elements for each application: The problem, the possible solution of the day’s problem without the knowledge management system, and the solution using the system. The scenarios were developed together with users during system design.

2.6.4 IT Support

Smooth system operation, as well as quick and competent system support, increases motivation for system use. We integrated the day-to-day scenarios into the training platform, and were able to prove that the project is much more than just another IT System. The local help desks, serving a combined total of 1,500 users worldwide, also provided support for the new system. This met internal customer as well as cost requirements. To provide for further system expansion, we included the IT infrastructure. We made sure that the scalable platform would be able to handle system growth and further applications.

3 Remarks

The system has paid off during its use, and Wellesley Ltd. has brilliantly mastered the challenges we mentioned in the beginning of this article. The next steps have already been discussed: Wellesley Ltd. knowledge should be provided for strategic customers and suppliers, too. This once traditional industrial company is evolving toward e-business, with a business model that builds upon their most valuable resource: knowledge.

e-business and

Knowledge

Management -

Approach and

Experience

Prabuddha Banerjee, Roger Baumer, Johannes Hennekeuser

The e-business Principle

This is one chapter out of the book that was published by IBM Consulting Group, Zurich in 2000.

Overview

• Knowledge is the enterprise’s key competitive asset. Knowledge management should not be considered as independent from business strategy and core processes. • Business processes must be supported by knowledge; both explicit and implicit knowledge must be taken into account. • A culture of open exchange, leadership, user integration, and efficient communication technologies are necessary requirements for the implementation of knowledge management. • With the use of e-business applications, knowledge management can be designed more effectively and expanded beyond enterprise borders.

1 What is "knowledge" and what is

"knowledge management"?

The awareness of knowledge as a critical element for economic success, if not survival, in a dynamic and intensely competitive environment has been apparent to managers and businesses across all industries for some time. Concepts like "Management of Core Competencies", "Resource Based Strategies", "Learning Organization" and "Use of Expert Systems" are evidence of this. Recently a new concept has arisen: the handling and deployment of knowledge as a valuable business resource requires more than just strategy and IT. Information technology does play an important role in enabling the collection, distribution, and use of knowledge at any place or time, even beyond the limits of the organization. That is why there are an enormous number of conferences and probably hundreds, if not thousands, of articles and books that deal with all kinds of approaches to knowledge management. However, many questions still remain unanswered, and solutions become evident only after the abstract concept of knowledge management is applied to the realities of business. Such questions include: How and where should we start? What knowledge is relevant to doing business? What is the concrete economic value? How do we need to change our organization? What’s the contribution of information and communication technology? How can we use our combined knowledge to go beyond the value chain? This article will help to find answers to these questions. We cannot present a fail-safe "recipe" for success, of course but we can highlight the characteristics of successful projects based on our experiences with our customers and with our company, IBM.

1.1 Knowledge

Firstly, we wish to distinguish the term "knowledge" from the terms "data" and "information", by using a comparison with the workings of a supermarket. Data involves simple statements about facts or events. In our comparison, this could be a data sheet with product numbers, quantity, and price. This data is saved in the inventory control system of the supermarket. When you give meaning to data it becomes information. A piece of information is exchanged between a sender and a recipient through a communication medium. In our example of the supermarket, it is the sales slip that gives you information about your purchase and the amount you paid. Knowledge builds upon information, enriching it with experience and context. After a visit to the supermarket, you will know what the store looks like, whether the cashier was friendly, whether the item you have purchased is up to your expectations, and whether you have found what you were looking for. These experiences and impressions determine whether you will consider visiting this supermarket again (utilizing your knowledge), or even if you will recommend it to your friends (sharing your knowledge with others). Hence, knowledge controls actions and decisions. Let us consider the same supermarket example from the supplier’s point of view. The collected data, which on its own is useless, will be consolidated and structured, resulting in information on business activity. We only talk about knowledge when the recipient, evaluates the information and based on all collected experiences, derives decisions. So, for example, supermarket managers might decide on a new display, an adjusted market approach, measures to reduce overhead costs, or a combination of these elements. In alignment with this store's e-business strategy, this knowledge will be distributed to the entire supermarket chain and shared with important suppliers and customers.

1.2 Kinds of knowledge

We differentiate between explicit knowledge and implicit knowledge. Explicit knowledge can be found in documents, plans, methods, process descriptions, check lists, drawings, and expert systems. Because this knowledge is documented, it can be saved in a database or an application and is available immediately. With an appropriate IT infrastructure, it is even available beyond enterprise borders. The knowledge of an individual, team, or entire business is far more than could ever be written down within the confines of normal time and resources. "White space" will remain in documented knowledge, and these areas will only be explored when they are needed. We call this type of knowledge "tacit" or "implicit" knowledge. It contains experiences, intuition and standards of behaviour that influence our discernment and, therefore, our actions. Implicit knowledge is usually richer and more profound than explicit knowledge. Depending on the situation, one can access implicit knowledge, reconfigure it, and enhance it more quickly.

1.3 Knowledge management and e-business

To use this immense knowledge as a resource in a business value chain, a systematic approach is necessary for management to make the collected knowledge available inside and outside of the enterprise. From a knowledge perspective, this approach combines improvements in processes, organizational structures, and the company’s culture, as well as its information technology. E- business, which comprises the implementation of new business models and corresponding business processes by using information and communication technology, requires a similar approach. Now, after having formed the theoretical base, we will use a real case to show how the IBM Consulting Group helped a customer on his way to managing knowledge.

2 The Case of Wellesley Ltd.

2.1 Background

Wellesley Ltd. is a European enterprise and a worldwide leader and pioneer in the industrial sector. Its wide range of products appeals to consumers who demand appliances customized to their specifications. The focus on customization creates demanding requirements for Wellesley’s sales staff. Twenty-five branches in Europe, America, and Asia, as well as a network of representatives and distributors in various countries, form the company’s global presence. Production is concentrated in five locations, while marketing is decentralized. The customization of the end product according to individual local or regional customer needs is at the discretion of each respective corporate branch. Therefore it is necessary to leverage specific skills and expert knowledge across the company. Because business subsidiaries focus on different products for their respective markets, specific knowledge is scattered all over the world. Research and development, on the other hand, are centralized at corporate headquarters.

2.2 Problems with the flow of information

and knowledge

Because of the enterprise's decentralized structure and geo-global alignment, the flow of information has always been an important topic. Headquarters mails brochures, detailed product information and specifications, instructions for customization, and criteria catalogues for the product of choice to each subsidiary. The information that flows back to headquarters consists mostly of customer complaints and product requests. More and more, these old processes were not able to appropriately meet new information demand. Since information was mostly paper-based and flowing in only one direction, headquarters did not receive any feedback regarding their subsidiaries’ and customers’ needs and problems. Also, branches complained that they did not receive information on time. A culture of "knowledge sharing" did not exist in this enterprise. Knowledge about innovative applications and "best practices" for customized solutions were only exchanged informally, or literally, by accident. Due to the large variety of the company’s products and varied customer needs, answering customer inquiries took a long time. These problems with information and knowledge exchange had a negative impact on the company's activities. Below are some typical examples: • The lack of shared information and knowledge about products and applications, and experiences regarding customization, led to "continual reinvention of the wheel". This influenced product quality and increased manufacturing and installation time, consequentially increasing costs. • Customer satisfaction and company and product image suffered due to the fact that different subsidiary corporations were offering multiple products for the same customer problem, and customer needs were only met after long delays.

2.3 The Approach

Now we will outline the approach and the critical success factors of the implementation. The IBM Consulting Group chose a three-step approach that breaks down into several sub-steps. In the first step we identified the knowledge strategy, which was derived from the corporate strategy and the critical success factors. We also examined the kind of knowledge that is needed to support the core processes. In the second step we developed the "Knowledge Management System" with applications, organizational roles and responsibilities, and required processes. Finally, in step three, the system is implemented. In the next sections we will outline the implementation using the example of Wellesley Ltd.

2.4 Definition of Knowledge Strategy

The initial questions were: How can we apply knowledge as a resource and use it to improve competitiveness? Which processes influence the application of strategy, and which type of knowledge plays a role in these processes? At the beginning of the article, we showed that successful knowledge management builds directly upon the company's strategy. Therefore, we conducted interviews with the CEO and members of the executive management to uncover Wellesley's critical success factors. The following factors could be identified: • Offer high quality products through customizing basic products with sophisticated production technologies and skills. • Maintain price leadership • Increase attention to customer needs • Be first in the development of new products, the provision of goods to customer requirements, and new application possibilities • Increase flexibility inside the organization to provide international range of goods and to solve industry-wide problems. In the next sub-step we identified business processes that have the greatest impact on these success factors. A core team with representatives from corporate headquarters and important subsidiaries was established, making it possible to include all the different requirements and points of view that existed throughout the company as a whole. Results of this collaboration were four processes which had the greatest influence on success factors: Logistics, product marketing, customization, and after-sales service. Next, the core team defined the specific influence of each process on the business and the knowledge necessary to exert this influence. If, for example, "product marketing" should contribute to the success factors, the following knowledge should be accessible: • Experiences and guidelines for choosing the best product for specific customer applications • Reliable support for all international customers, with product recommendations and offers that are consistent throughout all subsidiaries • Use of experiences of subsidiaries in all countries to shorten development time in new industrial sectors.

2.5 Development of the Knowledge

Management System

The initial questions were: How exactly can we infuse processes with existing and future knowledge? Which business processes and what supporting company culture need to be created?

2.5.1 Prioritization, design and

development of applications

Previous knowledge should be pooled into applications that enable its retrieval. For the existing process of "product marketing", this means a supported application that provides timely and exact information on criteria for product use, product data sheets, product brochures, and technical support. We will call this application "marketing support". We used the two criteria, "influence on business" and "implementation efforts", to prioritize all possible and required applications (for all business processes). In this analysis, developmental costs and time were not the only two fundamental issues. In addition, our experiences showed that for project’s success, quick wins are also necessary to prove at an early time, the value of the project applications to the entire enterprise. This will facilitate not only development but also subsequent implementation. Through prioritization, we found out that the "value chain" application will have an immense impact on business success. However, the general implementation and rollout of such an application would have required the migration of the existing standard application system. Due to the extensive implementation time and financial efforts this would have required, the implementation of this application was put further down on the priority list. On the other hand, applications with low influence but ideal implementation requirements were rated as high priority. To get a complete picture, this procedure was discussed at length with executive managers of subsidiary corporations and a core team from corporate headquarters.

2.5.2 Definition of knowledge processes,

roles and responsibilities

During this sub-step we determined the principles for gathering, using and enhancing knowledge. As initially mentioned, information is the foundation for knowledge management. Only experience in dealing with information enables effective knowledge management. Definite rules for dealing with information must be established to avoid the danger of having to rely on obsolete information that is inaccurate and, ultimately, useless. Without a superior information base, knowledge management has no foundation whatsoever.

2.5.3 The Knowledge Management

System of Wellesley Ltd.

At Wellesley Ltd., knowledge is generated along processes, evaluated, structured, and registered. Only then it is available for users. Knowledge experts are responsible for the quality of this process. In a subsequent stage of expansion, customers and suppliers can be integrated into the system.

2.6 Critical Success Factors for

Implementation

The implementation of knowledge management systems requires the similar number of processes as the implementation of other systems. That's why we will discuss only a few features of the present project here.

2.6.1 Top-Down: Leadership

Without the strong leadership of the sponsor, knowledge management will remain a project among many, and will not develop to its full potential value. In the present case, the CEO himself was the executive sponsor. His integrated role, as well as his active communication, was of crucial importance because of the decentralized organization of the corporation. Resistance could be effectively thwarted. For example: chain store managers complained about the time and effort that it would take to "feed" the system, and were afraid that their control over information flow would be threatened. The necessary investments in server, network, and support infrastructures also met with resistance. With CEO’s support and a few "change agents", as well as the launch of an information blitz, these barriers were overcome and a more positive basic attitude was generated among employees.

2.6.2 Bottom-up: Integration of Users

Beginning with project launch, users from across the organization were integrated into development activities. This was a radical change from the usual one-sided practice of predetermining business unit needs at corporate headquarters. During the workshops, users were enthusiastic about joining in. They made decisive contributions to system design, and infected the rest of the organization with their enthusiasm. The politics of "do it first, ask questions later" would have doomed the project to failure.

2.6.3 User Scenario Marketing

The information process described earlier required additional time requirements for users during the initial stages. To market the system internally, we developed day-to-day scenarios for every application, which demonstrate the project’s usefulness to daily work. Those scenarios contained three elements for each application: The problem, the possible solution of the day’s problem without the knowledge management system, and the solution using the system. The scenarios were developed together with users during system design.

2.6.4 IT Support

Smooth system operation, as well as quick and competent system support, increases motivation for system use. We integrated the day-to-day scenarios into the training platform, and were able to prove that the project is much more than just another IT System. The local help desks, serving a combined total of 1,500 users worldwide, also provided support for the new system. This met internal customer as well as cost requirements. To provide for further system expansion, we included the IT infrastructure. We made sure that the scalable platform would be able to handle system growth and further applications.

3 Remarks

The system has paid off during its use, and Wellesley Ltd. has brilliantly mastered the challenges we mentioned in the beginning of this article. The next steps have already been discussed: Wellesley Ltd. knowledge should be provided for strategic customers and suppliers, too. This once traditional industrial company is evolving toward e-business, with a business model that builds upon their most valuable resource: knowledge.